Can the government lower gas prices?

Tax moratorium. Open the Strategic Petroleum Reserve. Encourage new refinery construction. Fast-track domestic drilling permits.

As gas approaches $5 per gallon it seems everyone in and out of politics is pushing their favorite scheme for Washington to push prices down. They're all likely ineffective in the current free-market economy. Short of an explicit cap on retail prices - something that is never seen in this country - any administrative action to reduce wholesale costs will have minimal effect at the retail end.

Beside the policy debate, cutting taxes or releasing federally owned crude (presumably at a price well below market or cost) would have a minimal effect on the price at the pump. Even if the entire value of the stimulus ended up in the consumer's pocket, it would not return us to even 6-months-ago prices. The federal tax is 18c/gallon. Giving away 5% of US consumption from the SPR would deplete the reserve in less than two years and cut prices by only 25c/gallon. Whether either of these discounts makes it to the nozzle is problematical in a free market.

In my opinion, the other two schemes to attempt to influence the market face ethical challenges over economics. They require that current Americans run even more roughshod over the rest of the world and the future than we already are.

Some pundits claim that US refineries are running flat out and couldn’t produce more product if the input were available. Capitalism says anything can be done, if you’re willing to pay the price. Instead advocates want a defacto subsidy to expansion, either monetary or by relaxing pollution and safety requirements for an industry that already has plenty of problems in those areas.

And yes, relaxed regulations could allow more oil to be pumped on US territory. One writer stated that he knew energy companies can work safely and drill the outer continental shelf without any risk of direct environmental damage. I agree, but that is not the point. On the one hand, we fret about human-induced climate change; but on the other laments that we need to produce more oil to reduce the price so we can burn more oil … . If we are serious about passing a livable world on to future generations, we shouldn’t be trying to use a few more gallons today.

Economics should provide an eventual resolution to the question of gas prices – albeit one that may not be to the liking of current complainers. All commodities should reach an equilibrium price based on supply and demand. As prices go up, producers will find or redirect more supply. Also as prices go up, consumers will reduce their demand forcing suppliers to cut the price to justify their infrastructure. Eventually everything will balance out.

If you object to what a seller is doing – whether it’s raising prices or building an ugly store in your neighborhood – the free market response is to stop giving that seller your money. You can force gas prices down by buying less – change your driving habits or change your vehicle to use less gas per mile.

RESOURCES:
SPR
Daily oil demand